Why it matters:
A new report on the U.S. cannabis market reveals that only 24.4% of survey respondents say their cannabis businesses are profitable, indicating a crisis in the industry. This has been attributed to changes in consumer behavior during the COVID-19 pandemic, as well as issues such as regional bias, limited demand markets, the influence of the illicit market, and restrictive policies like IRS tax code 280E.
What they are saying:
According to the CEO of Whitney Economics, Beau Whitney, who analyzed the survey data, behavioral changes due to the pandemic have negatively impacted the cannabis industry. Many people were no longer able to “work from stoned,” leading to reduced revenue for businesses. He also mentions that ten out of the 36 state markets were not growing, including large markets like Colorado, California, Oregon, and Washington. The report acknowledges a strong regional bias in the data, with the majority of respondents coming from Oregon, but Whitney attempted to address this bias through triangulation.
The big picture:
The survey findings indicate a crisis in the U.S. cannabis industry, with a majority of businesses struggling to turn a profit. The growth in the market is primarily coming from states that recently legalized cannabis, while mature markets like Oregon have been struggling for years. Factors limiting growth include restrictive policies like IRS tax code 280E, limited access to banking, a limited demand market, and the influence of the illicit market. Policy reforms, such as safe banking, 280E reform, and opening up interstate commerce, are needed to save the industry.
What to watch:
Whitney plans to conduct quarterly surveys in the future, with fewer questions, to provide more up-to-date data on the industry. He also expects stronger support from regulators in states like Michigan, Colorado, and Florida, which were not well represented in the current survey. The support of the Cannabis Regulators Association (CANNRA) could also expand the pool of available data.
Takeaway:
The U.S. cannabis industry is in crisis, with a significant number of businesses reporting unprofitability. Policy reforms, such as safe banking, 280E reform, and opening up interstate commerce, are crucial to saving the industry. However, while the outlook may seem bleak in the short term, businesses that survive could thrive in the future when growth takes off again.
